Let’s begin with the 10,000ft view. The first thing to note is that ‘Bitcoin’ can refer to two distinct entities. Bitcoin the network:
Meanwhile, bitcoin the currency (with a lowercase ‘b’) is:
In 2009 a limited supply of 21 million bitcoins was created and a deflationary supply schedule set in motion which halves roughly every 4 years.
A sure-fire way to slow adoption of a new technology is to tell the public it will harm them or their environment in some way. Remember how mobile phones were going to give us all cancer? If you look at the narrative around bitcoin and cryptocurrency in general, we are often bombarded with how it’s used predominantly by criminals, whereas in reality just 0.24% of all transactions were thought to be illicit in 2022.
Similarly, we are told about how Bitcoin’s energy consumption is going to use all of the available power in the world. An article in 2017 by the World Economic Forum stated that by 2020 Bitcoin will consume more power than the world does today, a prophecy that has not materialised.
That Bitcoin consumes energy is an obvious but unhelpful truism. Certainly, Bitcoin consumes a great deal of energy, as much as a country like Argentina. However, the notion that Bitcoin’s energy consumption makes up an unsustainably massive part of global energy consumption is false, as is the idea that Bitcoin is, in essence, ‘stealing’ energy from those that vitally need it.
Let’s take a look at the numbers. According to research by Cambridge University the Bitcoin network’s power demand is 268.24 TWh at the time of writing. Compare this to global energy production of 167,716 TWh, and on this basis the Bitcoin network consumes just 0.16% of the world’s energy production.
To use a secondary data set, The Bitcoin Mining Council (who produce a quarterly report on the subject) reported in Q4 2022 that total energy production worldwide 165,317 TWh. Energy consumed by Bitcoin mining on the world’s electricity grid totalled 275 TWh, amounting to 0.17% of the world’s energy production. Sustaining a network with around $500bn total market capitalisation and over 100 million users. For context, 50,000 TWh of energy is lost annually due to inefficiencies in grid networks.
Source: BMC Q4 2022 Report
The main reason is that it acts as a means to secure the network from malicious attacks. So what stops someone from gaming the system? Well ultimately, it’s the lack of economic incentive to do so. To attack the network one entity would have to control over 51% of the network, requiring a huge investment to gain enough control. The larger the network becomes the less likely this is to occur.
In reality, Bitcoin as a technology is entirely agnostic towards its energy input as long as it’s there to keep the specialised computers (ASIC’s) hashing. Based on this logic, there is no technological reason why the Bitcoin network could not, or should not, run entirely on sustainable energy. According to research by the Bitcoin Mining Council in Q4 2022 bitcoin miners were powered off 58.9% sustainable energy.
When we think about the energy grid, it’s important to remember the supply and demand dynamics. The grid providers are continually searching for an equilibrium between supply and demand. A good way to think of this is a tug of war between two teams, representing supply and demand. If both teams are equally balanced the grid runs smoothly, if the demand side suddenly adds four new team members the supply side will fall over.
As countries move towards net zero carbon emissions and more renewable energy sources, the supply element could become more unstable due to prevailing weather conditions. Bitcoin miners can help fix this by becoming a source of what is known as ‘interruptible load’. This means that they can switch their demand off at short notice. If we think back to the tug of war example, the miners would form part of the demand team and would let go of the rope when the four new participants join the tug of war, ensuring that the equilibrium of supply and demand remains.
Miners can offer a number of benefits to the renewable energy credentials of a country or state:
Wind or solar farms cannot easily store excess energy produced, so instead can sell otherwise wasted energy to miners creating a new revenue stream, encouraging more renewable capacity development.
What becomes clear is the competitive advantage bitcoin miners hold over more traditional energy users that require an uninterrupted supply of energy at all times e.g. Amazon data centres, hospitals or even your refrigerator! That ‘interruptible load’ is vital to the continuation of the green revolution, so much so the International Energy agency has asked for 500GW of new demand response resources globally by 2030 to meet renewable energy targets.
The average U.S student loan debt is $39,351, and an even higher £45,000 in the UK. This huge figure is prohibitive for many so they do not attend higher education and gain the necessary skills to participate in the ever growing tech economy as software continues to ‘eat the world’.
So how does Bitcoin fit into this? Well there are currently no college degrees specifically relating to Bitcoin and one of the guiding principles of the crypto landscape, especially Bitcoin, is that everything is open source and available to all. If someone has the will and grit to educate themselves on this industry there is plentiful employment to be found.
Most of the world’s bitcoin mines are located in rural areas, helping to reverse the trend of young people leaving their local area due to a lack of financially rewarding employment. The Whinstone plant run by Riot Blockchain (located in Rockdale, Texas) employs over 200 local people with plans to expand further. In fact, bitcoin mining has the potential to empower local communities allowing them to become economically independent and generate prosperity.
If we zoom out further still there are examples of bitcoin offering further social goods. One of the big attractions to a decentralised network is that it’s free for anyone to access, irrespective of geography, race, religion or class. As long as the user has an internet connection and a device that can connect to it they can access and purchase bitcoin if they so wish. Giving otherwise marginalised communities access to bitcoin and other blockchain related investments is a real levelling of the playing field.
Bitcoin has a strong record on governance as part of a decentralised, transparent, autonomous blockchain. No centralised entity has control over the network. Changes are made democratically and any changes to the rules have to be agreed upon by the three main stakeholder groups, known as community consensus. They are:
Hence the rules are very hard to change. If they are changed, the update has been viewed as a benefit to the voting community.
This governance structure is poles apart from the centralised world we inhabit today where a few (generally unelected) individuals make policy decisions that affect all of us and our daily lives.
Recently South Africa, Turkey, Argentina, Venezuela have all experienced sudden negative currency fluctuations. Consider life in Turkey where President Erdogan implemented currency controls to stop the population opting out of the Turkish Lira as it lost over 44% of its purchasing power vs. the US dollar over the past year. This can’t happen with Bitcoin because of its programmatic money supply and defined issuance schedule.
Ultimately, Bitcoin has no CEO, no board of directors, no HR department and no central office. It’s a network, not a company. By no means is it perfect and for many other blockchain technologies this entirely democratic model would be completely unfeasible. Yet when it comes to being a custodian over a ‘sound’ money or a store of value it provides an alternative to centralised authorities.
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